Even before the Corona crisis, EU countries such as Italy, but increasingly also France, were Europe’s problem children. The debt ratios of Italy and Greece are among the highest in the world, at 162 and 205 percent, respectively. (The debt ratio results from the ratio of national debt to gross domestic product, or GDP for short.) In the wake of the pandemic, this situation has now worsened.
The head of the International Monetary Fund (IMF), Kristalina Georgiewa, therefore calls for a reform of the EU rules for budget spending. The fiscal rules should be adjusted because of the economic reality after the pandemic, said Georgieva. The current rules are an “unrealistically large and counterproductive burden for some highly indebted countries”.
In view of the sustained rise in debt in the EU countries, the Maastricht criteria have been relaxed several times in recent years – much to the displeasure of countries with comparatively solid budgets, including Austria. Due to the currently degenerating debt, the so-called Stability and Growth Pact has been suspended until 2023 anyway. This stipulates that EU states take on no more than 60 percent of economic output in debt. Budget deficits are to be capped at 3 percent of gross domestic product (GDP). But the debt of the euro countries should reach 100 percent of GDP this year, the deficit ratio 7.1 percent.
A reform of the Stability and Growth Pact has been going on in Brussels for months now. Countries like France and Italy in particular are calling for this. Countries with sound financial management – such as the Netherlands or Denmark – are against it. In view of these quarrels, Georgieva pleads for a transitional arrangement. And: Climate-friendly investments should not be “stifled”. The IMF recommends setting up a climate fund at EU level.
The IMF is also examining whether a change in the debt ratio of 60 percent is advisable, said Georgieva. Overall, she advocated simplifying the complicated rules and making them easier to implement.